2022 Federal Economic Statement
On November 3, 2022, federal Finance Minister Chrystia Freeland tabled the 2022 federal Fall Economic Statement (also known as the federal mini-budget), at a time when many economists are concerned about an impending recession.
KEY HIGHLIGHTS
• Federal deficit to decrease from -90.2 billion for 2021-2022 to -36.4 billion for 2022-2023, -30.6 billion for 2023-2024 and -25.4 billion for 2024-2025, with fiscal breakeven occurring during 2027-2028.
• In the event of a “downside economic scenario”: Federal deficit to fluctuate to -49.1 billion for 2022-2023, -52.4 billion for 2023-2024 and -42.3 billion for 2024-2025, with no identified timeframe for fiscal breakeven.
• No change to personal or corporate tax rates.
• No change to the capital gains inclusion rate, which remains at the current rate of 50%
NEW PERSONAL INCOME TAX MEASURES
1. Investment Tax Credit for Clean Technology
The mini-budget proposes to introduce a new refundable tax credit of up to 30% of the capital cost of eligible equipment. Eligible equipment includes:
• Electricity Generation Systems, including solar photovoltaic, small modular nuclear reactors, concentrated solar, wind, and water (small hydro, run-of-river, wave, and tidal);
• Stationary Electricity Storage Systems that do not use fossil fuels in their operation, including batteries, flywheels, supercapacitors, magnetic energy storage, compressed air storage, pumped hydro storage, gravity energy storage, and thermal energy storage;
• Low-Carbon Heat Equipment, including active solar heating, air-source heat pumps, and ground-source heat pumps; and
• Industrial zero-emission vehicles and related charging or refueling equipment, such as hydrogen or electric heavy duty equipment used in mining or construction.
Companies that adhere to certain labour conditions (e.g. prevailing wages based on local labour market conditions) will be eligible for the full 30% credit, while those that do not will only be eligible for a credit of 20%. The credit will be available as of the day of 2023 federal budget.
2. Investment Tax Credit for Clean Hydrogen
The mini-budget proposes to introduce the a new refundable tax credit of at least 40% for clean hydrogen based on the lifecycle carbon intensity of hydrogen, with more details to be announced later. Companies that adhere to certain labour conditions will receive an investment tax credit of at least 40%, while those that do not will have a reduced maximum tax credit rate by 10 percentage points. The credit will be available as of the day of 2023 federal budget.
3. Tax on Share Buybacks (or Redemptions)
A share buyback (or redemption) occurs when a corporation buys back its own common stock (or preferred stock) from existing shareholders.
The mini-budget proposes to introduce a 2% corporate tax that applies on the net value of share buybacks (or redemptions) by public corporations in Canada. Details of the new tax will be announced in the 2023 federal budget, and the tax will come into force on January 1, 2024.
NEW PERSONAL INCOME TAX MEASURES
1. Residential Property Flipping Rule – Extended to Assignment Sales
The 2022 federal budget (tabled on April 7, 2022) proposed the Residential Property Flipping Rule, a new deeming rule to ensure profits from flipping residential real estate are always subject to full taxation. Starting January 1, 2023, profits arising from dispositions of residential property (including a rental property) that is owned for less than 12 months are deemed to be business income, subject to the certain exceptions.
The mini-budget proposes to extend this new deeming rule to profits arising from the disposition of the rights to purchase a residential property via an assignment sale. Profits arising from an assignment sale will be deemed to be business income if the rights to purchase a property were assigned after having been owned for less than 12 months.
2. Automatic Advance for the Canada Workers Benefit (CWB)
The CWB is a refundable tax credit that supplements the earnings of low-income workers. An individual generally claims the CWB when completing their tax return.
The mini-budget proposes to automatically provide individuals who received the CWB for the previous taxation year an entitlement for the current taxation year through quarterly advance payments, so long as the tax return for the previous year is received and assessed by the Canada Revenue Agency prior to November 1 of the current year.
